be treated as merit goods or near-public goods. The provision of subsidies is most justified in this case. Near zero recovery rates in these cases only indicate the societal judgement that these may be financed out of tax-revenues. Merit social services: elementary education, public health, sewerage and sanitation, information and publicity, welfare of SC, ST's and OBC's, labour, social welfare and nutrition etc. Merit economic services: soil and water conservation, environmental forestry and wildlife, agricultural research and education, flood control and drainage, roads and bridges, space research, oceanographic research, other scientific research, ecology and environment and meteorology. Group 3: all the remaining services are clubbed under this head. In these cases consumption is rival and exclusion is possible, therefore cost-recovery is possible through user charges. These services are regarded as non-merit services in the estimation of subsidies. The distinction between merit and non merit services is based on the perceived strong externalities associated with the merit services. However, it does not imply that the subsidisation in their case needs to be hundred percent. In addition, even if small recoveries are advocated for merit services, the issues relating to the costs of their provision, leakages to non-target beneficiaries, and their effectiveness in attaining the objectives for which they are provided, need to be examined. It also does not mean that there are no externalities associated with non-merit services, or that the subsidies associated with them should be completely eliminated. Central government subsidies Trends in the subsidies given by Central Government ( Year 1994-95) The bulk of the Central Govt's subsidies arise on the provision of economic services, which account for 88% of the total subsidies (10% on merit services and 78% on non-merit). The recovery rates in the social end economic services are very low (around 10%). Subsidies on non-merit goods are more than five times those on merit goods, which reflects on an unduly large and ill-directed subsidy regime. The bulk of subsidies on merit goods go for the construction of roads and bridges, followed by elementary education and scientific research. Amongst non-merit services, the biggest recipients are industries and agriculture and allied services. 78% of subsidies which go for non-merit economic services are amenable to economic pricing. Even if one allows for a part of these subsidies being given in the interest of redistribution or provision of human needs, a substantial part must be due to inefficiency costs of